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BookingAlpha Option Trading Advisory

Thursday, March 20, 2014

May 2014 SPX Iron Condor

Here's today's trade:

Buy 4 SPX May 1695 Put @7.30
Sell 4 SPX May 1700 Put @7.60
Sell 4 SPX May 1960 Call @4.00
Buy 4 SPX May 1965 Call @3.50

Credit: 0.80 ($320 for 4 contracts)
Max Risk: 4.20 ($1680 for 4 contracts)
Days to expiration: 57
IV Percentile: 30%
Probability of success: 74% at market close
VIX = 14.52 at market close

This is the first transaction of the May expiration cycle, which is always my choice around 8 weeks to expiration when the markets are not oversold nor overbought. This trade does not mean that I am done trading April options. Not at all, if we reach a price extreme in the next couple of weeks I will probably trade it with April options. There are still 4 weeks to go there.

With this trade, these are all the positions in the portfolio now
March RUT 940/950 Bull Put Spread $180 credit (expires tomorrow morning)
March SPY 159/161 Bull Put Spread $143 credit (expires on Saturday morning)
March RUT 1240/1250 Bear Call Spread $280 credit (expires tomorrow morning)
April RUT 1080/1090/1280/1290 Iron Condor $480 credit
May SPX 1695/1700/1960/1965 Iron Condor $320 credit

Finally a chart of SPX after market close for future reference:
(Click on image to enlarge)

Check out 2014 Track Record

Related Articles:
Weekend Portfolio Analysis (March 30, 2014)
Weekend Portfolio Analysis (April 5, 2014)
Weekend Portfolio Analysis (April 12, 2014)
Weekend Portfolio Analysis (April 18, 2014)
Weekend Portfolio Analysis (April 26, 2014)
Weekend Portfolio Analysis (May 3, 2014) 
Weekend Portfolio Analysis (May 10, 2014

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  1. It is pretty crazy that your May bear call spread is 4.7% away from current price while your May bull put spread is 9% away from current price. There is just so little premium for bear call spreads. People will pay more for downside protection.

    I am going to put my May SPY iron condor trade tomorrow. Assuming price stays about the same as today, I am looking at 197/199 on the bear call side and 170/168 on the bull put side.

  2. Yeah, it's pretty crazy. The call spreads quickly become cheap. Your 197/199 will obviously be safer and above the projected uptrend channel. You'll get less, but I know you hate being tested on the Call side. So, if that works for you, so be it. I personally think SPX 1960 by May is possible. But I fear that no longer. I have been tested so many times, and I think it is all manageable. If I'm tested there, and adjustment in the 1990 - 2000 area should be a winner.


  3. Henrick,

    I will most likely place the following trade at the last half hour of the day - May SPY 198/200 and 170/168 assuming price stays roughly the same as this morning. I am willing to take in less credit but be farther away from the current price.

  4. I started following your blog a few weeks ago. Thanks for all the good information sharing. I am also looking at SPX. I couldn't figure out why you will trigger this Iron Condor trade on March 20. VIX is not high or spike up. Premium didn't look high as well. So, what make you decided to open the position on March 20, not a day earlier or a day later? What triggers the trade?

  5. Hey Tony,

    Good question.
    I don't live and swear by high volatility, and that doesn't stop me from trading. I just keep my positions at a level where I am comfortable managing it in terms of size. That's it. If I traded entirely based on implied volatility or VIX, I could never sell Calls for example. Because when the market rallies, (the ideal time to sell Calls) volatility goes down. Therefore a hard rule like that would prevent me form selling Out of the Money Calls after an extended rally, which is the good time to do it.

    Some other traders, like for example the popular "Karen" the super trader, sell options all year long regardless of volatility. Now she is more aggressive depending on the environment but she does sell options all year long. She doesn't do Calendars, or Debit spreads or Butterflies etc just because vol is low. Vol can stay long for a long time which we don't know how long will be.

    As for the trigger of this transaction in particular, it is very simple. I like to start opening trades 2 months before expiration. And if the market is not overbought nor oversold at that point, then I go with an Iron Condor rather than just one vertical spread.


  6. Thanks LT for the reply.
    When volatility spikes up (market crash), the prices of options go up, both Calls and Puts. It is still a good time to sell Calls.
    I have volatility as one of my guideline (not hard rule) when I sell options. I will be in a dilemma when volatility stay low for a long time. The worst time to sell will be on a day of low volatility and the next day volatility spikes up.
    I am still searching for some guideline to sell options on a long low volatility period.

  7. It is true that on market sell offs both Calls and Puts become more expensive. But, the market is poised to rebound strong and it kills you on the Call side. I've seen it so many times. My key is to defend my positions and not let price penetrate my short strikes.
    I only sell Calls when the market has rallied already even though volatility is low at that point. But that's just me. You will eventually find what works for you.

    Glad to have you as a reader Tony